Bond ETF Yields in Historical Context

The table below presents the SEC 30-day yield and the portfolio yield-to-maturity reported for most of the Barclay’s iShares bond ETFs.

Note, that unlike an individual bond with a fixed interest yield and yield-to-maturity, bond funds have turnover which causes portfolio yields to change.

To provide some historical perspective, the following charts plot the 19 year history of US Treasuries with maturities from 1 month through 30 years.

Comments

[User 283977:]

Your point is Eloquently made!

Does the National Muni Bond ETF have the same tax advantages as a traditional Muni?

2008 Dec 29 03:25 PM

[Weissass:]

The interest payments are tax-free (unless your state income taxes really suck) but any gains from selling the fund at a profit would qualify as a capital gain (15% longterm, 20% short-term). If you're in the highest federal tax bracket, the tax-free muni's are the way to go. I'm getting about a 9% annual tax-equivalent return. Buy and hold individual AAA/AA bonds to maturity and reinvest all proceeds = the mythical dream of compounding interest!

2008 Dec 29 04:21 PM

[QVM Group:]

Bob Lunn:

Your Question:
"Does the National Muni Bond ETF have the same tax advantages as a traditional Muni? "

Response:

Yes and No.

MUB is a national muni fund, with bonds from more than one state. Those bonds not from your state are not exempt ffrom state taxes for you, so only a portion, if any, of the interest is state income tax-free for you.

The iShares MUB Fact Sheet says the fund is, or tries to be, AMT free; meaning that none of the interest is expected to be subject to the federal Alternate Minimum Tax.

If you buy a single muni bond from your state, it will be state income tax free (unless there are states that don't play that way, of which I am not aware) and federal income tax free (unless the bond was for private purposes, in which case it would be subject to the federal Alternate Minimum Tax).

Capital gains on disposal or maturity of the bond is another matter outside of the issue of tax-free interest.

That is the big picture as we understand it, but we are not tax advisors, and you should not rely on this comment for tax planning or filing purposes. This comment is not intended as "tax advice" and should not be used as such.

If your information need goes beyond curiosity, you must consult your personal tax advisor for clarity, completeness and guidance before taking any investment or tax filing action.

Richard Shaw

2008 Dec 29 06:39 PM

[Indexor:]

Richard:

Excellent post. But then again, your posts are always informative and educational, often with a bit of humor thrown in for good measure. Your charts put the truth out there in black and white, whether we like the results...or not.

Here's an additional fact on MUB and all muni bond ETF holding periods that you might find useful:

You must hold Muni ETFs for 6 months before harvesting losses. Any
losses realized under the 6-month time frame will first have all the tax-exempt income that is received, deducted from that loss. Only then will additional losses qualify as a short-term capital loss.

2008 Dec 30 11:24 AM

[User 283977:]

Thank you for the clarification Richard.

2008 Dec 30 02:54 PM